A key measure of US manufacturing has beaten forecasts, helping push Wall Street and London markets sharply higher.

The ISM purchasing managers index came in at 50.6 in August, better than the expected figure of 48.5 and just shy of July's 50.9. The index of new orders was up marginally on July at 49.6. Economists had forecast the PMI to show its first reading below 50 since July 2009, but have been confounded. Rob Carnell at ING Bank said:

For those hoping for a dreadful manufacturing ISM to seal the fate of the next bout of quantitative easing (QE), the August release must be something of a disappointment. Sure, the index declined, but it remained above the psychological 50 threshold that is supposed to (but in fact doesn't) mark the boundary between manufacturing boom and bust.

Encouragingly, the new orders index also picked up a little, and though at 49.6, suggests that orders are declining, it nonetheless hints at slightly better things to come, rather than gathering weakness - more in line with so-called "soft patch" theories than double-dip.

August was clearly a weird month for the business sector, starting with the uncertainty of the US debt ceiling debacle, and subsequent Eurozone debt anxiety.

The news has seen a turnaround on Wall Street, which went from a fall of 30 points before the data to a rise of around 60 points. The FTSE 100 is currently 38.35 points higher at 5432.88, having drifted lower for much of the day.

The US data followed disappointing manufacturing surveys from the UK and Europe, but growth in China despite worries about the outlook.

Earlier in the day, US weekly jobless claims came in much as expected at 409,000, a drop of 12,000 from an adjusted figure of 421,000 for the previous week (up from the initially reported 417,000). The key US employment data will come on Friday with the publication of the non-farm payroll numbers, with analysts expecting a gain of around 75,000 jobs.

However construction spending showed a fall of 1.3% in July, compared to forecasts of a 0.2% increase.